Unquoted share valuation for estate duty must follow a consistent recognised method; separate goodwill addition was not sustained.

Valuation of unquoted private company shares for estate duty must be based on a recognised market-oriented method, namely the statutory break-up method under Rule 1D or, where appropriate, the yield method. The revenue cannot mix valuation approaches by using balance-sheet break-up figures and then adding a separate super-profit or goodwill component inconsistent with that method. Goodwill not reflected in the balance sheet is not normally added separately in a Rule 1D computation. The share valuation was therefore required to be redetermined afresh on a consistent recognised basis, and the separate goodwill addition was not sustained.

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Issues: Whether the value of the deceased's shares in a private limited company for estate duty purposes had to be determined by taking the company's total assets with goodwill included, or by adopting the recognised valuation methods without attributing goodwill separately from the balance-sheet figures.

Analysis: Section 37 of the Estate Duty Act, 1953 requires valuation of shares in a private company by reference to the price they would fetch in the open market. Rule 1D of the Wealth-tax Rules, 1957 provides a statutory break-up method for unquoted equity shares on the basis of balance-sheet assets and liabilities. The reasoning accepted that the revenue could not selectively combine break-up valuation with a separate super-profit based goodwill addition, because goodwill not shown in the balance sheet would not normally enter the rule-based break-up computation. If the break-up method was not to be followed, the safer alternative was the yield method approved by the Supreme Court, which reflects the real market value of the shares.

Conclusion: The shares had to be revalued afresh by applying either the recognised break-up method under rule 1D or the yield method, and the separate goodwill addition made by the revenue was not sustained.

Final Conclusion: The valuation adopted by the revenue was set aside and the matter was sent back for fresh determination of the share value in accordance with recognised valuation principles.

Ratio Decidendi: For valuation of unquoted shares for estate duty, the revenue must adopt a recognised market-based method consistently and cannot combine break-up valuation with an independent super-profit goodwill addition inconsistent with the chosen method.

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